Hobe & Lucas CPAs

Exploring business entities: Is an S corporation the right choice? Are you starting a business with partners and considering the best entity to form? An S corporation might be the ideal choice. One significant advantage of an S corp over a partnership is that, as an S corp shareholder, you won’t be personally liable for corporate debts. If you anticipate early losses, an S corp is more favorable than a C corp from a tax perspective. C corp shareholders typically don’t benefit from such losses, but S corp shareholders can deduct their share of the losses on their personal tax returns, up to their basis in the stock and any loans made to the entity. Contact us for more information.

Choosing the right sales compensation model for your business. What motivates salespeople? First and foremost, equitable and enticing compensation. And therein lies a challenge: Choosing the right sales compensation model isn’t easy and may call for reevaluation. The most common options include: 1) Straight salary (or hourly wages); this is the simplest option but doesn’t address motivation. 2) Commission only; it’s all about motivation but doesn’t offer employees financial stability. 3) Salary plus commission; this model offers stability but may be complex to administer. 4) Hybrid; here, you offer a salary plus performance-based incentives, an increasingly popular approach. Contact us for help assessing your company’s sales compensation model.

Ways to manage the limit on the business interest expense deduction. Current tax law generally limits deductions of business interest, with certain exceptions. If your business has significant interest expense, it’s important to understand the impact of the Section 163(j) deduction limit on your tax bill. Unless your company is exempt, your maximum business interest deduction for the tax year equals the sum of 1) 30% of your company’s adjusted taxable income (ATI), 2) your company’s business interest income, if any, and 3) your company’s floor plan financing interest, if any. If your company is affected by the business interest deduction limitation, contact us to see if you can avoid it or reduce the impact. We can help assess what’s right for your business.

How a business owner’s home office can result in tax deductions. As a business owner, you may be eligible to claim home office tax deductions that will reduce your taxable income. However, it’s crucial to understand the IRS rules to ensure compliance and avoid potential IRS audit risks. If you’re eligible, there are two ways to claim deductions. With the actual expense method, you claim direct expenses, such as the cost of painting and a share of indirect expenses, such as utilities, insurance and depreciation. With the simplified method, you deduct $5 per square foot of home office space, up to $1,500. Unfortunately, employees can’t deduct home office expenses. We can help you determine if you qualify and how to proceed.

5 steps to creating a pay transparency strategy. Pay transparency is the practice, or lack thereof, of a company sharing its compensation philosophy, policies and procedures with job candidates, employees and even the public. If your business has yet to formalize or articulate its pay transparency strategy, here are five general steps to creating one: 1) Conduct a payroll audit to get a complete picture of your compensation structure. 2) Define or refine your criteria for making pay decisions. 3) Develop a communications “substrategy” that includes written guidelines and Q&A sessions. 4) Train your supervisors to champion and accurately explain your strategy. 5) Get input from professional advisors such as your attorney and our firm.

Do you have a side business that earns you extra income? Melissa Love knows that in today’s economy, many individuals are turning their talents and interests into financial opportunities. But here’s something to keep in mind: if your business shows too many consecutive years of losses, the IRS might classify it as a hobby—and hobby-related losses can’t be deducted. Don’t lose hope just yet! Read this article for a summary of the Tax Cuts and Jobs Act rules and how they could affect your return. https://bit.ly/4khFMiN

Do you have an excess business loss? If an individual taxpayer has substantial business losses, unfavorable federal income tax rules may come into play. If your business or rental activity throws off a tax loss (and many do during the early years), things can get complicated. For example, you can’t deduct an excess business loss in the current year. For 2024, an excess business loss is the excess of your aggregate business losses over $305,000 ($610,000 for married joint filers). For 2025, the thresholds are $313,000 and $626,000, respectively. An excess business loss is carried over to the following tax year and can be deducted under the rules for net operating loss (NOL) carryforwards. Contact us with any questions.

Are your employees suffering from retirement plan leakage? The term “retirement plan leakage” refers to the withdrawal of account funds before retirement age for reasons other than retirement. If your company sponsors a qualified plan, such as a 401(k), beware of this problem. Having participants with leakage may mean they’re struggling financially, which could lead to lower productivity, poorer work quality and even the motivation to commit fraud. Educate and remind employees about how pre-retirement withdrawals diminish their accounts and can delay retirement. Consider sponsoring recently introduced “pension-linked” emergency savings accounts to serve as firewalls against withdrawals of retirement plan funds. Contact us for more information.

On developing an effective IT modernization strategy. Information technology (IT) is constantly evolving. The concept and challenge of keeping business technology current is called “IT modernization.” To stay competitive in most industries today, you’ve got to excel at it. However, you also have to approach IT modernization carefully and cost-consciously. Here are four tips: 1) Begin with an IT audit to get a clear picture of your infrastructure, policies, procedures and usage. 2) Align modernization efforts with strategic objectives; keep return on investment in mind. 3) Take a phased, pragmatic approach to initiatives; don’t try to do everything at once. 4) Train and upskill your users so they can roll with the changes. Contact us for help.

D&O insurance may be worth considering for some companies. Running a successful business can force you to make tough decisions that expose you to legal claims. To hedge against this risk, business owners can buy directors and officers (D&O) insurance. These policies financially protect business owners, executives and other leaders from legal claims arising from management-related decisions and actions. Under the right circumstances, coverage can benefit some small to midsize businesses. To decide whether it’s right for you, first assess your litigation risks. Also consider if having a D&O policy would help you recruit and retain executives and other leaders. Contact us for more information and help shopping for coverage if you decide to buy.